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Trefis has launched coverage of Burger King with a price estimate of $29. Burger King has three primary segments - Franchised Royalties, Franchise Rent & Fees, and Company-Operated Restaurants. It has decided to franchise the majority of its restaurants and focus on international expansion and healthier menu options to drive future growth. Our launch article details our outlook for the company.

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Comcast's Universal Studios Hollywood will host a new attraction based on its popular Fast and Furious film series. The theme park announced plans to add a 3-D, HD feature to the park's Studio Tour tram ride by summer 2015. While theme parks are just a small part of Comcastâ s business, they help promote other NBCUniversal properties and bring in stable cash flows. We expect theme park revenues to exceed $3 billion by the end of the decade.

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There’s Still Time to Profit From This Renewable Energy Technology
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  • Submitted by Wall St. Daily as part of our contributors program   There’s Still Time to Profit From This Renewable Energy Technology Among the many secrets to successful investing, one of the most powerful is to identify promising sectors that haven’t seen much interest . . .  then wait for the masses to catch up. In the technology sector, this usually happens with unfamiliar areas, where investors will only go halfway. For example, they’ll buy a solar panel company, but won’t peel back the layers to reveal even better opportunities, such as microinverter companies. And speaking of solar opportunities, there are a few highfliers in the market at the moment that pack a punch in this still-emerging area . . . Thanks, Uncle Sam In 2013, solar energy was on a tear. But the trend hasn’t continued into 2014, which has some investors wondering if the moment has passed. It hasn’t. The U.S. renewable energy space is getting some real traction because tax breaks are still available. The federal tax break will end in 2016, so we still have more than 18 months where solar should expand quickly in both the residential and utility areas. There’s a number of ways to buy in . . . Solar Surge Solar panel makers, especially the likes of First Solar ( FSLR ), have soared recently. Granted, that follows a big selloff, but importantly, it’s happening on good news. For example, FSLR is up almost 20% in recent weeks after giving very bullish forward guidance for fiscal 2015 and 2016. This is due to anticipation that many contracts will roll in before the 2016 federal subsidy deadline. In the meantime, FSLR needs to expand into residential and commercial operations. That’s because the competition in photovoltaics (PV) space is still tight and First Solar isn’t the only player here. Rivals include SunPower ( SPWR ), Yingli ( YGE ) and Trina ( TSL ). They’re all globally diversified and doing well. However, the most interesting play isn’t PV makers . . . The Best Player in a Fast-Growing Area It’s companies that make the panels more efficient and help PV installation owners manage their systems easily and effectively. These are the microinverter and optimizer companies. There are only a few publicly traded ones, but Enphase Energy ( ENPH ) is the dominant player in this growing space. Its microinverter delivers power conversion and an embedded software subsystem. This subsystem helps customers analyze system data and maximize efficiencies. First, Enphase’s Envoy communications gateway is installed in the owner’s home or business and serves as a networking hub. It collects data from the microinverter and sends it to the company’s data center. Enphase’s web-based Enlighten software collects and analyzes this information to enable system owners to monitor the performance of their solar equipment. Another firm in this space that bears watching is SolarBridge, which just raised another $42 million from venture capital investors, including large-cap utility, Exelon ( EXC ). The other way to play solar for the long term is with bigger, more-integrated firms that do more than simply sell PV’s or complementary equipment. There are two names that stand out . . . Think Big First, one of the most visible solar names – SolarCity ( SCTY ). It’s proved to be one of the solar juggernauts over the past couple of years, putting solar energy on the roofs of homes, businesses and government buildings. Keep in mind, though, that it’s one of those stocks that fluctuates pretty wildly – up 40% one minute, then down 30% the next. So expect volatility. At the moment, there’s a huge amount of short interest on the stock – and they’ve profited, with shares off more than 26% in the past month. But the long-term story is promising. Another well-established company involved in the solar industry is NRG Energy ( NRG ). NRG is a power generation and retail electricity company, engaged in the ownership and operation of power generation facilities and energy trading. It boasts a broad, diversified business across a number of energy-hungry states and has a more compelling portfolio of companies and services than SolarCity. For example, what makes NRG unique these days is its growing portfolio of green energy companies. Brands like NRG Solar, NRG Residential Solar, NRG Geothermal, eVgo, Reliant Energy, Green Mountain Energy and Petra Nova all deliver modern, cleantech solutions to growing energy demands. And last month, NRG acquired Roof Diagnostics Solar, adding to its stable of innovative companies. If you’re investing in the solar space, the fact that NRG is a true, diversified energy company, whereas SolarCity is basically a financing firm operating in a hot market, means it offers a better risk/reward profile. Good investing, G.S. Early The post There’s Still Time to Profit From This Renewable Energy Technology appeared first on Wall Street Daily .
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    Kimberly-Clark Earnings Preview: Baby Care And Consumer Tissue Will Witness Margin Expansion
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  • tags: KMB
  • Kimberly-Clark (NYSE:KMB) is set to release its results for the first quarter of fiscal year 2014 on Monday, April 21. The manufacturer of Kleenex tissues registered organic sales growth of 4% in 2013, achieving the mid-point of its guidance. While all the other segments grew organic sales by 3% or more, health care organic sales increased by only 1% due to decelerating growth in the U.S.— the world’s largest market for disposable medical devices. Kimberly-Clark will be pursuing a tax-free spin-off of the health care division later this year. According to Kimberly-Clark’s management, the spin-off could slow the rate of dividend increases in the short term. We think that the spin-off will create greater shareholder value in the long-term by allowing the company to further increase its focus on its core strength, the personal care business. Despite healthy organic sales growth, net sales increased less than 1% to $21.2 billion in 2013, as the combined impact of unfavorable currency exchange rate movements and lost sales due to restructuring activities nullified the growth. On the positive front, operating profit rose by 19% to $3.2 billion, helped by $310 million cost savings from the ongoing FORCE (Focused On Reducing Costs Everywhere) program. FORCE aims at containing costs and keeping the company on track for sustainable growth. The company expects significant currency headwinds and higher commodity costs this year. Nevertheless, it expects to save at least $300 million from FORCE, which should help it overcome these problems. We have a price estimate of $112 for Kimberly-Clark’s stock, in line with its market price. We will update our model after the results are announced. See our complete analysis of Kimberly-Clark here Baby Care Segment To Witness Strong Growth This Year In order to improve profitability and channelize resources toward stronger markets with better growth opportunities, Kimberly-Clark exited the Western and Central European diaper market (except Italy) last year. Exiting these markets allowed the company to divert resources towards China, Brazil and Russia, a few of the fastest growing diaper markets. In the second half of 2013, Kimberly-Clark’s diaper sales rose by more than 35% in China and by 20% in Brazil and Russia. The penetration of baby care products is increasing at a fast rate in countries such as Brazil and China owing to a large population, an increase in purchasing power, persistent product innovation and greater brand awareness among consumers. Euromonitor expects the demand for diapers, nappies and pants in China to grow at a CAGR of over 15% on a volume basis between 2012 and 2017; the rate in Russia and Brazil should be near 5%. During its fourth quarter earnings call, Kimberly-Clark briefly laid out its plan for diapers for the current year. The company identified China as a key growth market and announced that it will expand into 10 more cities by the end of the year. It will launch new diaper innovations in Brazil, China and Russia, and also support these by increasing its advertising expenditures. We think that these factors put the company on track to deliver strong growth in baby care this year. Operating Margins To Expand Due To Cost Savings And De-sheeting Exercises We think that Kimberly-Clark’s recent efforts to enhance the selling price per unit for tissues and diapers will provide an upward momentum to the margins. In mid-2013, the company carried out a de-sheeting exercise across its Kleenex and Cottonelle line of tissue products, reducing the number of tissues per box by 13% without changing the price of the box. The effective rise in price per sheet boosted operating profits for consumer tissue (accounts for 31% of company net sales) by 17% year-on-year in Q4 2013, the highest for any business segment of the company. Kimberly-Clark conducted a similar exercise across its Huggies diapers range and began shipping the new packages in February. We believe this will help the company to post margin expansion in baby care as well. Baby care products contribute about 25% to company net sales. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis)
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    UnitedHealth's Results Meet Expectations But ACA Implementation Affects Bottom Line
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  • tags: UNH AIG TRV HIG
  • UnitedHealth Group’s (NYSE:UNH) first quarter earnings were about in line with market expectations, but the health insurer’s stock tumbled after management acknowledged the headwinds associated with  implementation of the Affordable Care Act (ACA). Revenues grew 5% over the prior year, driven by a 2.7 million increase in enrollments, but sequestration cuts to the Medicare Advantage funding and newly effective ACA taxes reduced the net margin from 4.1% in the first quarter of 2013 to 3.5%. The medical care ratio (medical costs to premiums) improved 20 basis points to 82.5%, helped by billing ACA fees. However, as the fees were not tax deductible, the effective first quarter tax rate increased 5 percentage points to 42%, directly affecting the bottom line. The health services division, Optum, continued to perform strongly, with a 29% year-on-year increase in revenues and 20% operating income growth. The division accounted for 35% of the company’s revenues, compared to 28% in 2013. We expect a greater contribution from this division going forward. Our $74 price estimate for UnitedHealth’s stock is in line with the current market price.
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    IBM Earnings: Revenues Decline As Hardware Sales Continue To Disappoint
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  • tags: IBM MSFT HPQ
  • International Business Machines (NYSE:IBM) posted its Q1 results on April 16. The company reported a decline in revenues due to cross currency headwinds and low demand for its servers. While the revenues declined by 3.9% year on year to $22.484 billion, net income declined by 21.4% to $2.38 billion. Diluted GAAP EPS also declined by 15.4% to $2.29 during the quarter, primarily due to workforce rebalancing that impacted the bottom-line by $870 million. Its core software business posted low-single digit gains, primarily due to 5% year-on-year growth in branded middleware revenues. Furthermore, Global Business Services (GBS) revenues grew by 2% year over year in constant currency to $4.5 billion, buoyed by growth in its cloud computing and analytics initiatives. However, its Global Technology Services (GTS) revenues declined by 1% to $9.3 billion. IBM’s system and technology division continued to disappoint and reported 23% year-over-year decline in revenues to $2.4 billion, due to product transitions and market disruptions. See our full analysis on IBM Server And Storage Division Drags Revenues And Profitability Server and storage division, which was once the mainstay of the company, is witnessing a continuing decline in revenues. During the quarter, revenues for this division declined by 23% to $2.4 billion. While System-Z, Power Systems and System-X revenues declined by 40%, 21% and 17% respectively, storage revenues declined by 23%. The hardware business has been under pressure for a number of quarters.  The System-Z mainframe  business is in the latter quarters of a product cycle, though its market position remains strong.  The Power Systems business  is focused on high-end Unix and Linux computing. Customer investment here has migrated to bladed and white-box data center environments, more than off-setting contribution of the high performance end of the market.  Finally, with the sale of the x86 business to Lenovo pending, the performance of the Systems-X business has faltered.  And with the sales of servers down so sharply, the storage business is under pressure as well. Management is right-sizing the remaining businesses and, once the sale of the x86 business is completed, the server and storage business will be smaller and more profitable. Branded Middleware Boosts Middleware Revenues The software business, which includes the Middleware division together with operating systems division, is the biggest contributor to IBM stock value and makes up nearly 55% of our estimate. During the quarter, the software segment (middleware and operating systems combined) reported 2% year-over-year growth in revenues to $5.7 billion. The key branded middleware reported good growth once again, as revenues from this grew by 5%. IBM’s flagship WebSphere software reported double digit growth at 12%. Furthermore, its Tivoli and Rational Suite of software reported modest growth at 7% and 2% respectively. Since these solutions cater to the growing markets that include mobile, social and security tools, we expect software division to post robust growth in the near future. Restructuring Impacts GTS Revenues The Technology Services division (GTS) accounts for 22.5% of IBM’s stock value according to our estimates. During Q1, GTS revenues declined by 1% year over year to $9.3 billion. As part of a long-term strategy, IBM sold its customer care business process outsourcing (BPO) services business in Q4 to focus on high margin verticals. The divestiture of this business was completed in Q1 FY14, and negatively impact GTS revenues marginally. However, since the company has been restructuring the low margin contracts, its operating profit margins improved by 90 basis points to 47.6% in Q1 2014. New Business Initiatives Drive Growth At GBS The Business Services division (GBS) contributes over 11% to IBM’s stock value according to our estimates. GBS reported a 2% year-on-year growth in revenue to $4.5 billion, buoyed by growth in Business Analytics (5% growth) and Cloud (50% growth). As new verticals become a larger part of GBS, they’ll contribute more to the top line performance going ahead. We are in the process of updating our IBM model. At present, we have a  $230 Trefis price estimate for IBM which is about 20% higher than the current market price. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis)
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    Revlon Earnings Preview: Expect Subdued Color Cosmetics Sales, Robust Sales Contribution From TCG
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  • tags: REV LRLCY EL
  • Mass market cosmetics manufacturer Revlon (NYSE:REV) is expected to report its Q1FY14 earnings on April 21. In the current quarter, we expect an acceleration in sales growth from the consolidation of Revlon with the recently acquired The Colomer Group (TCG). Sales during Q1FY13 and Q1FY12 have shown no growth on a reported basis, at $332 million and $331 million respectively. For the present Q1FY14, we expect organic revenues from Revlon to remain subdued. However, overall sales are expected to be buoyed by the addition of sales from The Colomer Group (TCG). On the other hand, the consolidation of Revlon and TCG has not been margin accretive so far. In the first quarter post acquisition (Q4FY13), gross profit margins declined to 62% from 65% in Q4FY12. In addition to a decrease in gross profit margins from an increase in cost of sales, Selling, General and Administrative (SG&A) expenses also increased during the previous quarter. SG&A expenses as a percentage of revenue increased from 43% to 51% post consolidation in Q4FY13. In this pre-earnings note, we take a look at key focus areas in the upcoming Q1FY14 earnings from Revlon. See Our Full Analysis for Revlon Weak Performance From Color Cosmetics Expected To Continue Revlon derives a majority of its revenues from its organic and inorganic color cosmetics brands such as Revlon, Almay, SinfulColors and Pure Ice cosmetics. Last fiscal, color cosmetics sales accounted for approximately 62% of overall revenues. However, sales for the division have been under pressure due to weak performance from the Almay brand. On a reported basis, revenues from the sale of color cosmetics products stood at $850 million, $913 million and $926 million in FY11, FY12 and FY13 respectively. The sharp increase in FY12 revenues was a result of the addition of Pure Ice cosmetics products in June 2012. Excluding the impact of acquisitions, we see that the growth in Revlon’s color cosmetics division has been marginal. In the short term, revenues from the color cosmetics division are expected to have marginal growth on a year-on-year basis. Issues such as low marketing and research spending have plagued Revlon’s product line, as has competition in the cosmetics industry intensifying rapidly in recent times. This has resulted in a reduction in display space from retailers, with Revlon products being replaced with competitor products from L’Oréal (OTC: LRLCY) and Estèe Lauder (NYSE:EL). For Q1FY14, we expect the performance of the color cosmetics division to be particularly weak, impacted by the cold weather witnessed in the North American region in the January-March 2014 period. However, on a longer term, increased revenues from the consolidation of TCG into the Revlon Group should definitely percolate into higher marketing and research spending, thereby lending support to a revival in performance for the division. Hair Care Segment Performance In Focus Through the acquisition of The Colomer Group, Revlon has gained a stronger footing in the hair care market. Prior to the TCG acquisition, Revlon had only the Revlon ColorSilk brand in its hair care segment. This limited presence in the hair care segment resulted in weak growth in year-on-year sales for Revlon, from $181 million in FY08 to $191 million in FY12. However, hair care revenues for FY13 expanded 38% over FY12 to reach $264 million, primarily due to the addition of TCG sales in Q4FY13. We believe the addition of new brands such as Revlon Professional, Intercosmo, Orofluido and UniqOne from TCG has created a diverse hair care portfolio for Revlon. In addition to a diversified product portfolio, TCG also provides an additional sales channel apart form the retail, mass-market channel that Revlon operates in. For example, Revlon Professional products are exclusively distributed in the professional channel to salons, salon professionals and salon distributors in more than 80 countries. This broadened product base and new sales channel should bode well for Revlon’s business performance going forward. We currently estimate Revlon’s hair care segment to contribute 31% to its overall business value. However, top line acceleration from the complete integration of TCG should expand the contribution share of the hair care segment for Revlon. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis)
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    China Unicom's Profit Rises 74% On Revenue Growth In 3G/4G & Broadband
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  • tags: CHU CHL CHA
  • China Unicom ‘s (NYSE:CHU) net profit shot up 74% year-over-year (y-o-y) to RMB 3.3 billion ($536 million) in Q1 2014 on solid sales growth in the mobile and broadband businesses. Mobile service revenue grew by over 15% y-o-y to RMB 40.7 billion ($6.62 billion) driven by net addition of 45 million 3G and 4G subscribers in the one year period prior to March 31. On the cost side, interconnection charges paid by the carrier to its peers  China Mobile (NYSE:CHL) and China Telecom (NYSE:CHA) declined by over 22% to RMB 3.72 billion, owing to a favorable revision in interconnection fees at the start of the year. Subsidy costs also declined as a percentage of service revenues to 6.7% in Q1 2014 from 11.6% in the first quarter of 2013. This was primarily because of the carrier’s focus on low-cost smartphones to gain subscribers in the last few quarters. China Unicom, the second largest carrier in China, launched 4G services last month and was the last among its rivals to enter into the expanding Chinese 4G market. The impact of 4G on the company’s Q1 2014 results was likely minimal considering that it was launched in the latter part of the quarter. However, we expect it to play a significant role in the near future, especially in improving the carrier’s average revenue per user (ARPU). China Unicom’s mobile ARPU at the end of the first quarter stood at RMB 47.6 ($7.74), up marginally from the prior quarter. In the fixed-line business, China Unicom’s service revenue grew by about 6% y-o-y to RMB 22.9 billion ($3.72 billion), driven by double-digit sales growth in broadband services. The total number of broadband subscribers reached 66.4 million, aided by 1.8 million net subscriber additions in Q1. Going forward, we expect the company to continue expanding its broadband network across the country as part of its commitment under the government’s ‘Broadband China’ plan. Our current price estimate for China Unicom is $17, implying a premium of more than 20% to the market price.
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    Netflix Earnings Preview: Euphoria Of Q4 2013 To Subside In Q1 2014
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  • Netflix (NASDAQ:NFLX) will release its Q1 2014 earnings on April 21, given the recent performance of the stock, the earnings will be under watchful scrutiny  Last month, we wrote an analysis talking about the disconnect between the company’s business fundamentals and its market value (read Numbers Show A Disconnect Between Netflix’s Market Valuation And Business Growth Trajectory ). The stock has fallen by 25% since, as the market corrected itself after the exuberance that followed its Q4 2013 results. As we look forward to the first quarter results, we also take a cautious view. While the results are likely to be strong, growing competition and rising costs warrant a higher risk factor for Netflix’s stock. We believe the market is also aware of this. Our $250 price estimate stands at a discount of about 25% to the market.
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    SAP Q1FY14 Quick Take: On-Premise Revenues Contract, On-Demand Sales Accelerate
  • by , 2 days ago
  • tags: SAP ORCL IBM CRM
  • First quarter results for SAP AG (NYSE:SAP), reported on April 17, fell short of analyst expectations. The German software developer reported IFRS revenues of €3.7 billion compared to our estimate of €3.8 billion. Consensus first quarter estimates for SAP also were approximately €3.8 billion. Non-IFRS  revenues, which exclude currency fluctuations and deferred revenue adjustments, expanded 6% to reach €3.9 billion for the first quarter. The company continued to impressively scale its on-demand business. IRFS Cloud revenues grew an 60% to €219 million over the prior year level, which excludes the deferred revneu of acquired businesses.   More tellingly, non-IFRS  revenues for the company (excluding currency effects and including this deferred revenue) expanded 38% year on year to reach €231 million for the quarter. This revenue growth rate of 38% stands higher than its earlier guidance for FY14. We believe the acceleration in cloud revenues for SAP is a result of strong demand for cloud solutions powered by SAP HANA, in addition to good operational performances from Ariba, SuccessFactors and hybris. Going forward, we expect further acceleration in revenue growth for the cloud business through organic and inorganic channels to meet its 2017 revenue target of €3 billion - €3.5 billion. However, revenues from on-premise software offerings declined in the quarter. New license revenues for on-premise offerings stood at €623 million, 5% lower than revenues from a similar period last fiscal. Comparatively, new license revenues for on-premise offerings from SAP were 3% higher in Q1FY13 on a year-on-year basis. In this earnings note, we present a quick takeaway of SAP’s Q1FY14 earnings. See Our Complete Analysis For SAP AG Is SAP Sacrificing On-Premise Growth To Expand Cloud Footprint? The on-demand business for SAP has shown strong momentum since its inception. In fact, the first quarter, it attained an annual revenue run-rate (includeing both subscription & support and cloud-related professional services revenues) of  €1.1 billion. Comparatively, cloud revenue run-rate for fiscal 2013 at the end of Q1FY13 stood at €840 million. Fiscal 2013 cloud revenues ended at €787 million, lower than the actual revenue run-rate due to business seasonality. Accounting for seasonality in subscriptions, overall FY14 revenues for the cloud business should be comparatively lower than the calculated run-rate of €1.1 billion. The company previously guided cloud revenues between €950 million - €1,000 million for FY14, which looks more plausible at the moment. However, on-premise sales have taken a beating this quarter, falling 5% on an IFRS basis. This fall in IFRS revenues is much steeper compared to previous quarters. In the recently concluded fiscal 2013, SAP reported a 2% decline in software (new license) revenues on an IFRS basis. Even on a non-IFRS constant currency basis, revenue recognition slowed down considerably. Non-IFRS constant currency revenues for new on-premise licenses expanded by 1% this quarter, compared to 4% for fiscal 2013. A slowdown in new license revenues may well have been augmented by SAP’s aggressive push into developing its on-demand business. Business usually find the cloud model easier to deploy and consume at reduced costs, despite concerns on data privacy and security. This enterprise shift to on-demand consumption of IT solutions impacted many legacy software players such as SAP, Oracle and IBM in recent times. The company has lost its CRM market leadership to pure-play operator Salesforce in 2012, and has been under pressure from other cloud operators such as Netsuite and Workday in the ERP and HCM verticals. With its focused cloud strategy, SAP is benefiting from the move to cloud-based solutions, as customers cut back in investments in more traditional architectures. On a longer term, this strategy of funneling growth in new licenses onto its cloud offerings should bode well for the company. However, we could see a decline in new license sales for the company for the next few quarters as customers shift from on-premise deployments to its cloud offerings. We are currently reviewing our  $95 Trefis price estimate for SAP and will follow up with a detailed analysis of the Q1FY14 earnings for the company.
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    Google Earnings: Revenue Grows But Disappoints Market
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  • Google (NASDAQ:GOOG) posted its first quarter results on April 16. The company reported 19% year-on-year growth in revenues to $15.42 billion, which were in line with our expectations. Its operating income from continuing operations grew by approximately 3.5% to $3.65 billion. However, the profits failed to enthuse the market which was expecting far better results. The company also reported lower traffic acquisition costs in absolute numbers and as a percentage of advertising revenues:  23.3% in Q1 2014 versus 25.0% in 2013. Growth in revenues from mobile advertising drove a steep 9% year-over-year decline in cost-per-click (CPC). However, aggregate paid clicks, which represent the number of ads served across Google properties, posted a solid 26% year-over-year growth. This led to a 17% increase in advertising revenues during the quarter. Click here to see our complete analysis of Google Cost Per Click Falls As Ads On Mobile Increases We currently estimate that PC search ads and mobile search ads contribute approximately 65% to the firm’s value. Online ad spending is expected to increase in general.  eMarketer has predicted that worldwide mobile ad spending will exceed $31.45 billion in 2014. Even though mobile search ads are expected to only generate 17% of the company’s total revenues in 2014, we expect the proportion to increase to over 35% by 2020. The cost per click (CPC), a metric that measures the price paid for the number of times a visitor clicks on a search ad, has been on a steady decline for the past few years. The recent trend indicates that over 50% of the web traffic is coming from mobile devices. Advertisers have realigned their ad budgets in favor of mobile devices. Traditionally, CPC for mobile ads is lower compared to that of a PC. As a result, the average blended CPC (CPC for both mobile and PC) declined by 9% year over year during the quarter. However, CPC was flat sequentially, since the company has successfully launched enhanced campaign that bundles mobile ads with desktop ads, and eliminates the difference between PC CPC and mobile CPC. Going forward, we expect that the growth in mobile advertising will continue to weigh on CPC. Capitalizing On The Popularity Of Android With Play Store Google’s phone division makes up 8% of its value. Google continues to leverage the growing popularity of its Android operating system with app sales on its Play store. Furthermore, Google’s apps (such as Google Play, Search and the YouTube app) have close to 50% reach for the mobile audience according to comScore. This was reflected in the growth of Google’s other revenues, which grew by 48% year over year to $1.55 billion, and is primarily composed of revenues from sale of digital content. Going ahead, we expect revenues from digital content to grow to $5.6 billion by 2020, bolstered by the increasing use of Internet to deliver content such as movies, books and music. Capital Expenditure Continues To Soar Google continues to invest heavily in Internet infrastructure and reported $2.3 billion in capital expenditures in the first quarter of 2014. Majority of capital investments are for IT infrastructure, including data center construction, servers and networking equipment. Google has been steadily ramping up its spending for the past couple of years, in an effort to improve its return on investment and quality of service. We expect capex spending to continue at these levels in the coming quarters, which will lower cash flows. We currently have a  $544 price estimate for Google, which is in line with the current market price. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis)
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    PepsiCo Rides On Growth In Frito-Lay And Developing Markets In The First Quarter
  • by , 2 days ago
  • tags: PEP KO DPS
  • Snacks and beverage behemoth,  PepsiCo (NYSE:PEP) reported solid Q1 results on April 17, beating consensus estimates. While analyst expected revenues of $12.4 billion and $0.75 earnings per share, the company generated $12.62 billion in sales and earnings grew to $0.83 per share. Although net revenues remained even compared to the previous year, organic revenues increased 4%. Financials were mainly hurt by unfavorable currency translations and structural changes. As expected, growth came from the booming snacks division and emerging economies. According to our estimates, Frito-Lay North America alone constitutes over one-third of PepsiCo’s valuation. This division saw a 4% rise in organic sales, bolstered by both volume and net pricing increases. The company is the leader in savory snacks in the U.S. with a 36.6% market share. On the other hand, PepsiCo is the far second with 28.7% share in the domestic carbonated soft drinks (CSD) market, behind the The Coca-Cola Company ‘s (NYSE:KO) 42.4% share. This segment of the U.S. beverage market has declined in each of the last nine years, hurt by health concerns and negative consumer perception. As over one-fifths of PepsiCo’s sales have historically come from CSDs by our estimates, the diminishing demand for sugary sodas in the developed world has somewhat offset the growth from snacks. Going forward, the company expects a mid-single-digit improvement in core constant currency net sales this year, but currency is estimated to have an unfavorable impact of 3% on this figure. We estimate a $87.13 price for PepsiCo, which is around 3% above the current market price. However, we are currently in the process of incorporating the latest earnings into our forecasts. See Our Complete Analysis For PepsiCo Sodas Continue To Suffer In The Domestic Market CSD volumes declined 1% year-over-year in North America for PepsiCo. This comes as the soda segment battles negative consumer sentiment regarding high sugar and calorie content in soft drinks. After three consecutive years of growth, the U.S. liquid refreshment beverage (LRB) market remained flat in terms of volumes in 2013. CSD volumes declined by 3.2% year-over-year to less than 13 billion gallons last year, primarily due to a slide in diet drink sales. But what hurt PepsiCo most was relinquishing market share to its chief competitors  The Coca-Cola Company (NYSE:KO) and  Dr Pepper Snapple (NYSE:DPS) in the U.S. In the first quarter as well, dollar sales for CSD decreased by 1.9%, according to a research report by Wells Fargo Securities. Although the flagship drink Pepsi registered a 4% rise in unit sales, unit prices fell 3.6%, meaning flat dollar sales. Diet sodas have fared the worst in the CSD segment. Safety concerns over aspartame and stevia’s bitter aftertastes have further caused a 7% decline in diet soda consumption in the domestic market in the first quarter. Dollar sales of Diet Pepsi fell 7% in the four-week period ending March. However, PepsiCo is now working on alternate sugar solutions to stop this free fall in low/no calorie volumes. The company has lined up the introduction of the natural flavor modifier “Sweetmyx” and the stevia-derivative “Reb D”, for use in low-calorie soft drinks. In addition, PepsiCo has announced the launch of “Pepsi made with real sugar” in the U.S. in June this year. This comes as high-fructose corn syrup has suffered negative consumer perception. Natural sugar-variants could improve sales for PepsiCo, going forward. Mexico Reports Disappointing Food And Beverage Sales As expected, volumes for both the food and beverage divisions were hit by the newly imposed taxes in Mexico. The country imposed taxes on certain foods with high amounts of saturated fat, sugar and salt. This effectively increased prices of some savory snacks by 8%. On the other hand, a one-peso-per-liter (around 7.6 cents) tax on sugary drinks also raised beverage prices. Mexico is the third largest market for PepsiCo behind the U.S. and Russia, contributing 6.5% to the net revenues last year. With more than half of the country’s population living below the national poverty line, a rise in junk food and beverage prices dissuaded some price-sensitive customers from consumption. As a result, PepsiCo’s organic revenue from the foods business in the country declined by a low-single-digit percent. Beverage volumes also fell in Mexico to cause a 1% decline in overall Latin America volumes. This fall in Mexico sales comes after several consecutive quarters of growth, and is expected to continue to negatively impact the company’s business this year. Margins Improve Due To Increased Productivity PepsiCo achieved operating margins of 14.3%, up 100 basis points over 2013, mainly due to productivity gains. The company had earlier announced its five-year productivity savings plan for 2015-2019, according to which it plans to save $1 billion each year by optimizing global manufacturing operations and simplifying organization systems to drive efficiency. PepsiCo is on course to draw an incremental $1 billion in savings this year, after saving $900 million in 2013, as part of its savings program for the period of 2012-2014. Key Earnings Takeaways Maximum growth for PepsiCo came from Russia and Brazil, reporting double-digit increases in sales. Russia is the largest international market for the company, and together with Brazil, constituted 10% of the company’s net sales last year. Despite our earlier estimates, organic volume for Quaker Foods North America increased 3% in this quarter, gaining market share in the three breakfast segments of hot cereals, ready-to-eat cereals and snack bars. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis)
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